Banks are avoiding hiking mortgage rates to win over prospective buyers despite facing squeezed margins on the back of recent market turmoil.
According to Reuters-cited industry sources, banks’ appetite to lend has outstripped fears around higher funding costs.
Swap rates, which determine mortgages, have jumped in line with a rise in UK government borrowing costs on the back of a bond market sell-off over fears around stubborn inflation and low economic growth.
Two-year swaps have hit their highest since last July at 4.6%, while five-year swaps have risen to 4.52%, a level last seen in late 2023.
Average two and five-year mortgage rates had climbed just 0.02% between Friday and Tuesday, according to Moneyfacts, leaving the latter at 5.27%.
Mortgage demand has remained competitive, one source highlighted, adding banks were prepared to face lower margins in order to buoy activity.
Lloyds Banking Group PLC (LSE:LLOY), NatWest Group PLC (LSE:NWG), HSBC Holdings PLC (LSE:HSBA), Barclays PLC (LSE:BARC) and Nationwide Building Society are among those grappling for market share as a result.
Moneyfacts finance expert Rachel Springall noted there were “millions” set to soon come off fixed deals, “so remortgage activity will be booming in 2025”.
Data showing cooling inflation in December on Wednesday has since raised hopes for a Bank of England rate cut next month.
A 74% chance of an interest rate cut at the central bank’s next meeting was being priced in on Wednesday, against 62% ahead of the inflation figures.